Q16SE - Horngren'S Financial And Managerial Accounting

Question

D & T Printing Supplies’ accounting records include the following accounts at December 31, 2018.

Purchases \( 185,200                     Accumulated Depreciation—Building \) 21,000

Accounts Payable 7,700               Cash 18,100

Rent Expense 8,600                      Sales Revenue 257,800

Building 42,800                               Depreciation Expense—Building 4,700

Common Stock 55,000                 Dividends 26,500

Retained Earnings 30,400            Interest Expense 1,900

Merchandise Inventory, 

Beginning    119,000                                  Merchandise Inventory, 

Ending 102,100

Notes Payable         11,300                        Purchase Returns and Allowances 20,700

Purchase Discounts         2,900

Requirements 

1. Journalize the required closing entries for D & T Printing Supplies assuming that D & T uses the periodic inventory system. 

2. Determine the ending balance in the Retained Earnings account.

Step-by-Step Solution

Answer

The closing balance in the retained earnings accounts is$123,000.

Step 1: Definition of Retained Earnings

In accounting, Retained earnings refer to the amount of profit that a business entity retains to meet future contingencies and other expenses. It is reported in the liabilities section of the positional statement. 

Step 2: Preparation of closing entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
Dec 31	Sales revenue	257,800
	Purchase returns and allowance	20,700
	Purchase discounts	2,900
	Merchandise inventory (ending)	102,100
	Income summary		383,500
	(To close the revenue and other accounts containing credit balance)
Dec 31	Income summary	319,400
	Purchases		185,200
	Merchandise inventory (beginning)		119,000
	Rent expenses		8,600
	Depreciation expense-building		4,700
	Interest expenses		1,900
	(To close the expenses and other debit balance accounts)
Dec 31	Income summary (383500-319400)	64,100
	Capital		64,100
	(To close income summary account)
Dec 31	Capital	26,500
	Dividends		26,500
	(To close the withdrawals)

Step 3: Computation of ending retained earnings balance

Particulars	Amounts ($)
Retained earnings (Opening balance)	30,400
Add: Common stock	55,000
Add: Income	64,100
Less: Dividends	(26,500)
Retained earnings (Closing balance)	123,000